Rational and Irrational Decision Making

DECISION MAKING MODELS
? Satisficing: When we satisfice, we choose an alternative that yields the most satisfaction for our greatest needs even though the alternative might not be ideal or optimal.

? Prospect Theory: Prospect theory suggests that our decisions are influenced depending on how the alternatives are presented. If, for example, it is suggested that a particular action will create a loss, we are likely make a decision based on loss aversion.

? Certainty Effect: The certainty effect identifies our preference to eliminate loss rather than lessen it. If, given a choice between two solutions wherein one might help and the second solution would definitely help, we would likely opt for certainty.

? Pseudocertainty: Pseudocertainty suggests that if given an action that appears to eliminate risk, rather than simply reducing it, we are likely to opt for that action.

? Regret Theory: Regret theory rests on two fundamental assumptions; first, that many people experience regret, and second, that in making decisions under uncertainty, they try to anticipate and take into account that sensation.

? Multi-Attribute Choice: When we are faced with a variety of decisions and each possible choice is filled with numerous attractive and unattractive characteristics, we are being frustrated by multi-attribute choice.

? Noncompensatory Strategies: When people are confronted with complex choices among a number of alternatives, they typically use noncompensatory strategies. In contrast to compensatory strategies, these strategies do not allow trade-offs.

Part I
1. What do you think those different concepts imply about how people make decisions?

2. Do the decisions we make always need to be rational?

3. Under what circumstances are we (decision makers) likely to make irrational choices?

Part II

For this project consider the fact that at one point in US history the decision to own slaves was considered rational and informed. Today we would consider the decision to own slaves "irrational". For this project:

1. Identify one other example of a decision (past or present) that was once considered "rational" but that is now reviewed as "irrational".

2. Explain, in detail, why the decision was once considered "rational" but would now be considered "irrational".

3. Identify the decision theory (from the models above) you believe was used in the original decision making within your example. Be sure to fully support "why" the theory you selected was present. Simply naming a theory won't be enough...you need to support your answer.

Attachments

Solution Preview

Hi,

Excellent questions!

RESPONSE:

1. What do you think those different concepts imply about how people make decisions?

Clearly, decision making is subjective and influenced by many variables For example, as suggested in the attachment. If someone suggest that "a particular action will create a loss, we are likely make a decision based on loss aversion". Or, "when we satisfice, we choose an alternative that yields the most satisfaction for our greatest needs even though the alternative might not be ideal or optimal" (from attached resource). This means that the way we make decisions might not be rational, in the sense of a step-by-step process, which should be used to avoid the biases that enter into the decision-making process.

2. Do the decisions we make always need to be rational?

Ideally, decisions should be rational so you make the best decision possible, in a given situation. However, clearly from the above methods of ...

Solution Summary

Referring to decision making models, this soltuion addresses several questions e.g. what do you think those different concepts imply about how people make decisions, do the decisions we make always need to be rational, under what circumstances are we (decision makers) likely to make irrational choices. In referecne to societal changes over time, it also identifies an example of a decision (past or present) that was once considered "rational" but that is now reviewed as "irrational" and interprets it in terms of a decison making theory.